Companies paying for a tax return service for their US assignees are likely to see a rise in professional fees as the IRS have released a new draft form that will soon be mandatory for tens of thousands of US citizens and green card holders.

Who will be affected?

The HIRE Act signed in 2010 requires individual US taxpayers with an aggregate balance of more than $50,000 in foreign financial assets to file new form 8938 with their annual US income tax returns.  There are substantial potential penalties for failure to file.

Foreign financial assets include non-US bank accounts, brokerage accounts, pension plans, companies, partnerships and other financial or investment funds.  The first forms 8938 should be filed in 2012 for assets held during the period from 1 January 2011.

The new form will have to be filed in addition to the existing annual Foreign Financial Account Reporting (FBAR) (Form TD F 90-22.1) and additional annual reporting required for investments in Passive Foreign Investment Companies (PFICs), foreign companies, foreign partnerships and foreign trusts.

What information needs to be included in form 8938?

The new law requires that form 8938 states the maximum value of the assets during the tax year.  The Form 8938 should also contain the following information in the case of a:

• financial account – the name and address of the financial institution in which the account is maintained and the account numbers
• stock or security – the name and address of the issuer and identification of the class or issue of which such stock or security is part
• other asset such as partnership interest, pension plan or foreign trust – the name and type of entity and the postal address

Potential issues in completing form 8938

No instructions on completing form 8938 have been published and it is therefore unclear as to exactly how it should be completed.

What is clear is that there is going to be a lot of extra reporting required.  For this reason, companies paying for a tax return service for their US assignees are likely to see a rise in professional fees due to this additional work.

For further information or to discuss any of the issues raised, please contact Andrew Aldridge or Louise Mooney on +44 (0) 20 7357 8220.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the United States Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (I) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.